The discussion about central bank digital currencies (CBDCs) has gained impressive momentum. So far, however, the main focus has been on the macroeconomic implications of CBDCs and the narrow perspective of developing a digital substitute for cash. This paper adds the microeconomic dimension of CBDCs to the discussion. We provide an overview of the existing payment ecosystem and derive a systemic taxonomy of CBDCs that distinguishes between new payment assets and new payment systems. Using our systemic taxonomy, we are able to categorise different CBDC proposals. In order to discuss and evaluate the different CBDC design options, we develop two criteria: allocative efficiency, i.e. whether a market failure can be diagnosed that justifies a government intervention, and attractiveness to users, i.e. whether CBDC proposals constitute attractive alternatives to users compared with existing payment assets and payment systems. Our analysis shows that there is no justification for digital cash substitutes from the point of view of either allocative efficiency or the user. Instead, our analysis highlights the option of a retail payment system organised or orchestrated by the central bank without a new, independent payment asset.
Keywords: central bank digital currency, central banks, payment systems, international payments, financial inclusion.
JEL codes: E42, E44, E52, E58, G21, G28.
Peter Bofinger is Chair for Monetary Policy and International Economics at the University of Würzburg, Department of Economics and CEPR. Thomas Haas is Research Assistant and Ph.D. Candidate at the University of Würzburg, Department of Economics and CEPR. The paper has received the Best Paper Prize at the CEPS/ECRI/ECMI call for papers on “The future of digital payments in the EU”. It has been presented at the webinar “Will central banks succeed in the digital currencies market?”, 9 December, 2021.